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The unbearable cost of electricity consumption

Our government has raised the electricity tariffs yet again. These frequent increases in electricity tariffs are problematic for a number of reasons, but more than anything, it clearly demonstrates that the government has no new solution in hand to deal with power sector issues other than taking the path of least resistance — further squeezing those helpless consumers who are already struggling miserably under the heavy burden of an endless streak of electricity tariff hikes in the country.

There are news reports also that the government through its Economic Coordination Committee (ECC) has approved increase of power tariff by 26 paisa per kWh to meet an IMF conditionality against the15 paisa per kWh raise that the National Electric Power Regulatory Authority (NEPRA) had recommended to it. This recent raise will be on top of the Rs.1.83 per kWh increase that NEPRA had approved during the first week of November 2019. This decision, therefore, casts shadows on the much trumpeted independence of NEPRA as the government proved that it can bypass the regulator whenever it considers this to be expedient.

A critical consideration when fixing tariffs of an essential utility such as electricity is its “affordability” for the general public as well as productive sectors of the economy. When the price of such an essential service rises beyond a few percent of the monthly income of residential consumers, it starts to have a punishing effect on their livelihood as families are compelled to cut corners on some of their other basic needs such as food, health, and education. Such price increases also adversely affect the competitiveness of the products and services of industrial, agricultural, and commercial consumers leading to their losing market share and, in extreme cases, even driving them out of business.

Like the invested costs of the installed power plants, the wrong decisions of the previous regimes that have led to these investments are also sunk and no amount of chest beating by the present rulers is going to reverse these. Wisdom demanded that, instead of digging graves as to who was responsible for the current mess in the power sector and why, the government should focus on making efforts to ameliorate the current crisis and steer the nation towards a more affordable, secure, and sustainable energy future. The government, however, appears stuck in history and unable to move forward. Fifteen months on into power, and the government is still clueless as to what it should be doing to resolve the power sector issues which are worsening with every passing day.

Pakistan’s power sector problems are quite well-known and are clearly documented also. If asked, even a layman in the streets of Pakistan could tell that our power sector is currently ailing from three critical issues: (i)gross mismanagement at the top and pervasive inefficiencies at all levels below; (ii) lack of recovery of a substantial portion of the billed amount from some consumers; and (iii) a rapidly spiraling up circular debt. The first two in the above list are chronic and have been with us for quite some time; the third one is relatively new, but is rapidly exacerbating.

One can, therefore, safely assume that these issues and their criticality were not hidden from a political party that had been vying for power for the past 22 years. Once coming to power, it was expected to put its own plan into action to quickly plug the holes that have been constantly bleeding this sector and take effective measures to transform it on more solid and viable footings in the long run. All we have seen, however, are tall promises and run-of-the-mill solutions that can, at best, be termed Band-Aids and quick-fixes, devoid of any deeply thought out vision, strategy, or plan.

Although not the instigator for it but a key contributor to the rapidly burgeoning circular debt in the power sector is the gradually shrinking consumption base in the country. The average electricity consumption in various categories of consumers is continuously on the decline for the past few years. The actual reasons for this can only be determined through proper research but it can be argued on intuitive grounds that electricity consumers in the country may be either tightening their belts under the burden of exorbitant power rates or switching to alternative modes of power supply such as solar photovoltaic systems or other distributed sources of power to reduce or eliminate their dependence on grid supply.

 

Energy analysts in the country have been repeatedly highlighting on various forums that unlike the past when they were solely dependent on grid supply, electricity consumers now have many alternative options and choices available to them. They can now reduce their electricity requirements by investing into energy efficient fixtures and appliances or demand-management technologies. They can also invest in small-scale distributed and renewable power generation technologies on their side of the meter to reduce their dependence on the national grid or avoid it altogether. As such, they are no longer prisoners of the utility grid as they have been in the past.

In the above changed and still evolving environment, grid-supply will have to be kept reasonably attractive in terms of its reliability, quality, and price to keep the existing consumers tied with the grid and not seek alternatives to it. As such, thoughtless increases in rates are bound to further narrow the continuously shrinking gap between the costs of grid supply and its alternatives, thus inducing more and more consumers to consider and opt for alternative means to meet their electricity demands.

Our government’s recent decision to offer reduced rates to some electricity consumers on their extra consumption on top of their last year’s winter consumption records is a welcome first step, but may not be sufficient by itself to keep the consumers tied with the grid and not desert it. Additional and more imaginative, attractive, and stable tariff packages will have to be devised to discourage such trends.

There is also a compelling need to conduct load research in the country to fully comprehend the patterns of electricity demand and the various reasons that are forcing consumers to reduce their demand and are encouraging some of them to seek alternatives to grid supply. The results of these research studies would provide the government and the regulator a very useful information base to devise attractive and flexible grid access and usage tariffs that encourage consumers to remain linked with the national grid and discourage them from deserting it.

In the short run, the government will be better-off to stimulate electricity demand in the country. It can accomplish this objective by incentivizing existing consumers to maintain or increase their demand on the grid and by extending grid supplies to new consumers as according to some reports over 50 million people in Pakistan are still without electricity. This will expand the existing consumption base in the country and will serve to dilute the killing effects of continuously rising capacity charges in the electricity tariffs.

In the medium to long run, the government must plan to blend the emerging new distributed energy resources in the grid, including the renewable power generation technologies, as despite the new market trends, grid supply still remains much superior to independent and stand-alone power generation options for individuals, industries, and business enterprises.

The key to accomplishing these goals, however, will be how imaginative, creative, and flexible our government’s future power sector policies and institutions are in unlocking their tremendous potential for the nation. Electricity tariffs have always formed an important component of any government’s policy packages for the power sector. Therefore, these should be devised with all aspects and implications properly studied. Improper and punitive tariffs can easily turn out to be the decisive factor between the success and failure of the government’s power sector reform efforts. Utmost care and prudence is, therefore, required when setting these tariffs.

Dr. Rahim is a freelance consultant, specializing in sustainable energy and power system planning and development. He can be reached via email at  msrahim@hotmail.com

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